State Lottery Halts Purchase of Tickets, Plans to Rebid Pact

SACRAMENTO — The state Wednesday stopped buying lottery tickets from Scientific Games Inc., the company that bankrolled the lottery initiative and then was the only successful bidder for the initial $40-million contract to supply tickets for the "scratch-off" ticket game.

State Lottery Director M. Mark Michalko, citing legal problems involving Scientific Games and a Georgia printing firm that the state wants to bar from involvement with the lottery, said immediate steps were being taken to rebid the ticket supply contract.

"I have decided that the California Lottery has no alternative but to quickly seek new bids on a contract that will guarantee the flow of tickets beyond October," when the current supply is expected to run out, Michalko said.

Michalko, in a letter to Scientific Games Chairman John R. Koza, said the state will not place any further orders with the Georgia-based firm under the current contract. The lottery director also said he will request the Lottery Commission to rescind a six-month contract extension, worth $26 million, that was granted May 14.

Scientific Games will not be excluded from the bidding, although it was not clear Wednesday whether the firm, a subsidiary of Bally Manufacturing Corp., will be able to clear up its legal problems in time to bid on the new contract.

Koza, in a statement, said he hoped to have the firm's legal problems cleared up in time to enter the new bidding. He blamed the firm's problems on Dittler Brothers Inc. of Atlanta, which holds an exclusive 25-year contract with Scientific Games to print lottery tickets for the firm.

The action Wednesday stems from a Georgia court decision Tuesday saying that Scientific Games could not break its contract with Dittler Brothers, even though a Georgia court found the subcontractor had been defrauding Scientific Games on the cost of materials used to print the lottery tickets.

Because of the fraud judgment, the Lottery Commission earlier this month demanded that Scientific Games fire its ticket supplier or face losing its contract with the state.

In a statement released from Georgia, Paul Lohnes, a spokesman for Dittler Brothers, said, "Dittler believes that Scientific Games has misled the Lottery Commission in giving only one side of the story. We believe the commission has acted precipitously and ignored the real facts in this case."

He said the question of whether the firm defrauded Scientific Games is still pending before the Georgia courts.

Scientific Games spent more than $2 million qualifying passage of the lottery initiative in 1984 and helped draft the Lottery Act, which critics said was designed to limit competition for the contract by calling for detailed financial statements and tax records of top executives, which few major firms could provide. Scientific Games ended up as the only bidder and won the initial contract.

This time, bidding will be under different rules. Legislation was enacted earlier this year designed specifically to promote competition in the bidding for lottery contracts by eliminating demands for the filing of detailed financial records.

The legislation was drafted by Sen. Ralph C. Dills (D-Gardena), chairman of the Senate Government Organization Committee, who said he was "very pleased" that the contract would be rebid.

'More Bidders'

"This time around, you'll see a more bidders," he predicted.

Michalko provided no details about the new contract. He said a formal proposal will be issued "very shortly." He also predicted "receiving responses from several vendors" but did not name them.

The development Wednesday will not affect the new lotto game that will be played on computer terminals. It is being developed as an alternative to the instant-winner ticket games. The lotto contractor is GTECH Corp. of Providence, R.I.